WHY INVEST INTO MUTUAL FUNDS?

There are clear advantages to investors in terms of -

· risk spreading

· professional investment expertise

· ease of administration

These advantages apply to both open-end and closed-end funds

RISK SPREADING

It is obviously not sensible for an investor to put all his eggs into one basket. Holding one or just a very few stocks is potentially dangerous because significant falls in value will cause considerable loss to the investor. It has been proven that this specific risk associated with holding individual stocks may be substantially eliminated by risk spreading - holding a minimum of 15 to 20 different types of shares. It is clearly impossible for an investor of modest means to achieve this, given that it is uneconomic to invest less than say £2,000 into each holding because of transaction costs. The investor would need to invest a minimum of say £40,000 - and not many of us have that much spare cash!

Pooling enables investors of modest means to overcome this problem - most fund management companies will accept a minimum investment of say £1,000 or even less. The fund will invest the pooled monies of all the investors into at least 30 / 40 different shares, thus achieving the diversification unavailable to the individual investors. Alternatively, most fund management companies offer a regular savings scheme for those investors who may not have a lump sum to invest, or prefer to invest a little each month - say £50 per month.